Can we make a home mortgage loan to an executive officer of our bank for $500,000 and a car loan to that same executive officer for $100,000 without exceeding the lending limits established under Regulation O?

Yes, you may make both loans to the same executive officer at the same time, subject to the limitation discussed below.

Under Regulation O, a bank may extend credit to any executive officer in any amount to finance or refinance the purchase, construction, maintenance, or improvement of a residence of the executive officer, provided the extension of credit is secured by a first lien on the residence, the residence is owned (or expected to be owned after the extension of credit) by the executive officer, and the executive officer has only one outstanding mortgage loan from the bank at any time.

Regulation O also permits banks to make loans to an executive officer for other purposes in an amount not to exceed $100,000 (or 2.5% of the bank’s unimpaired capital and unimpaired surplus, if that is a lower amount). The $100,000 limitation applies only to the total amount of “other purpose” loans to that officer—not to the total amount of all loans to that officer.

Rather, the aggregate of all loans and extensions of credit to one executive officer is limited to 15% of a bank’s unimpaired capital and unimpaired surplus (unless fully secured by readily marketable collateral, in which case the limit increases to 25%).

We also note advance board approval is required when the total amount of loans or extensions of credit to one executive officer exceed $500,000 (or 5% of your institution’s unimpaired capital and unimpaired surplus, if that is a lower amount).

For resources related to our guidance, please see:

Regulation O, 12 CFR 215.5(c)(2) (“A member bank is authorized to extend credit to any executive officer of the bank … in any amount to finance or refinance the purchase, construction, maintenance, or improvement of a residence of the executive officer, provided: (i) The extension of credit is secured by a first lien on the residence and the residence is owned (or expected to be owned after the extension of credit) by the executive officer…”)

12 USC 375a(2) (“A member bank may make a loan to any executive officer of the bank if, at the time the loan is made … it is secured by a first lien on a dwelling which is expected, after the making of the loan, to be owned by the officer and used by him as his residence, and no other loan by the bank to the officer under authority of this paragraph is outstanding.”)

Regulation O, 12 CFR 215.5(c)(4) (“A member bank is authorized to extend credit to any executive officer of the bank … For any other purpose not specified in paragraphs (c)(1) through (c)(3) of this section, if the aggregate amount of extensions of credit to that executive officer under this paragraph does not exceed at any one time the higher of 2.5 per cent of the bank's unimpaired capital and unimpaired surplus or $25,000, but in no event more than $100,000.”) (emphasis added)

OCC Comptroller’s Handbook, Insider Activities, pg 25 (“Determine whether the aggregate amount of extensions of credit to any executive officer at any one time for purposes other than first-lien mortgages or children’s education exceed the higher of $25,000 or 2.5 percent of the bank’s unimpaired capital and unimpaired surplus (but in no case may that aggregate amount exceed $100,000)”) (emphasis added)

Regulation O, 12 CFR 215.4(c) (“No member bank may extend credit to any insider of the bank or insider of its affiliates in an amount that, when aggregated with the amount of all other extensions of credit by the member bank to that person and to all related interests of that person, exceeds the lending limit of the member bank specified in §215.2(i) of this part.”)

Regulation O, 12 CFR 215.2(i) (Limiting loans to a single borrower to 15 percent of the bank's unimpaired capital and unimpaired surplus in the case of loans that are not fully secured, and an additional 10 percent of the bank's unimpaired capital and unimpaired surplus in the case of loans that are fully secured by readily marketable collateral.)

Regulation O, 12 CFR 215.4(b)(2) (“In no event may a member bank extend credit to any insider of the bank or insider of its affiliates in an amount that, when aggregated with all other extensions of credit to that person, and all related interests of that person, exceeds $500,000, except by complying with the requirements of this paragraph (b).”)